Ethical issues in Multi-level Marketing: Is it legitimate business or just another pyramid scheme?

 Ethical and legal issues  Overview of MLM and problems  How to differenciate legitimate to unlegitimate marketing opportunities?  5 questions to determine the legitimacy of a multilevel opportunity.

The MLM industry  MLM = « network marketing »  Estimates of worldwide sales are as high as 90 billion $ (Dyer 2001) 2004 : 99 billion US $ 2004 : 99 billion US $  over half of the respondents had purchased at least one item from MLM company (Kustin and Jones 1995)  Pyramide schemes : 1996 to 2002  Bad image of MLM but image not universal (Gabriel 1993)  Many people are in favor in MLM

Giving good advice  Hypothesis: « MLM is bad »  All the MLM industry is bad  Difficulty to differenciate legitimate marketing practices from inethical ones  Direct selling seems to fill a legitimate need in the marketplace

 2 types of products: - innovative products  Ex: home water filtration device  - products, which need information  Ex: Nutrilite company  What is the difference between a legitimate marketing opportunity and an illegal or unethical one?  See guideline

Question 1: How is the money being made?  Legitimate MLM companies compensate their salespeople for selling products or services to comsumers and not for simply recruiting people.  A good DS companie must carry inventories.  « inventory-loading » or « front-loading »  Amway: buy back unsold inventory requires that 70% must be sold in the month it was purchased requires that 70% must be sold in the month it was purchased  Direct selling association’s code of ethics : MLM companies must repurchase inventory

Question 2: Are the products legitimate?  Koscot test: compensation must be based on sales  Overpriced  Unneeded  How to differentiate? « Would I buy a product such as this at the price that is beeing charged? » « Are people buying these products who are not doing so to make money? »

Question 3 : How much does it cost to be involved?  3 types of costs: - registration - inventory - inventory - training - training

Question 4 : How much work is required?  Patience  Experience

Question 5 : How long has the company been around?  Myth : « ground-floor opportunity »  Dexter Yeager : number 1 income producer of Amway after 5 years  Bill Britt : number 2 in 7 years

conclusion  Identity and evaluate ethical issues